Buying or Selling a Small Business in Virginia
Many individuals start a business and then decide that being a business owner is not for them. There are many reasons why small business owners decide to sell the business: family commitments, debt, partner disputes, death, etc. Many entrepreneurs find that purchasing an existing business can save them time and money. If done incorrectly, the results can be disastrous for the new owner. This article does not discuss the financial considerations behind purchasing an existing business, but rather the legal considerations.
A good business attorney will perform a due diligence inspection of the existing business. What this means is that the attorney will examine the records of the existing company. It is important that your attorney scrutinize these areas closely. If you do not perform an exhaustive due diligence examination, you may be stuck with the result once you are the owner of the business. Your attorney should examine/research the following (not an exhaustive list):
- The debts of the existing business;
- OSHA requirements and/or violations;
- Fire code;
- Potential liens against the business or equipment;
- Zoning; and
- Business licenses
Your attorney should also negotiate with the owner of the building in which the business is located. Although the current business may be doing things a particular way now, it does not mean that they are in compliance with their lease. For example, they may have signage in the front of the building which is in violation of the lease. Your attorney will also want to ensure that the existing business owner provides support to ensure a smooth transition to you of the premises.
You will want to take an inventory of all the equipment within the business and have your attorney include that in a purchase agreement. You want to ensure that you and the current owner are on the same page as to what is included in the purchase price. For example, if you are buying a restaurant, you may think that the glassware is included in the price, but the owner sells the glassware separately prior to closing.
If the current owner plans on opening a similar business, you may wish to have your attorney include a non-compete agreement in the contract. This simply means that the current owner cannot open the same type of business right next door to you. For example, if you are purchasing a high-end salon, you would not want the old owner to open up shop within a specified radius of your new business because he/she would simply steal your clients. This may not be the case in every instance. However, you may want to consider a non-compete agreement even if the current owner says the do not want to compete.
Another consideration is whether you are buying the good will and existing client base of the current buyer. If that is included in your purchase price, your attorney needs to ensure that the current owner is bound to comply by helping foster a relationship between you and his/her former clients. In other instances, the new purchaser of the business wants nothing to do with the old clients. This is a personal choice. If this is something you are concerned with, you should discuss the matter with an attorney.
You need a business attorney who will add value to the experience.
This list of considerations is not exhaustive, it is meant to be a starting point in your discussion with an attorney. If you are considering the purchase of an existing business, I would like to provide you with legal counsel. I am enthusiastic about protecting small businesses and helping entrepreneurs achieve their dreams. I want to ensure that you do not face surprise and heartache after purchasing a business.
NOTICE: The above information is general in nature, and is offered to increase public knowledge and awareness. It is not designed to provide advice on specific case situations. Contact Ryan C. Young to explain your unique situation.
Ryan C. Young | Small Business Law | Richmond, Virginia